Bloomberg News

Policy Aides With Early Canada Data Hurt Market Confidence

October 17, 2011

(Updates with lawmaker call for committee hearings in fifth paragraph)

Oct. 17 (Bloomberg) -- Statistics Canada sends at least 69 government workers and political aides economic reports a day before publication, a practice that investors say undermines market confidence.

Finance Department officials and ministerial staff can see up to nine different reports, including employment and inflation, according to government documents requested by Bloomberg News under freedom of information law, as well as responses to e-mails and interviews. Staff at the Privy Council Office, the international trade and human resources departments, and central bank also see data early, officials said, bringing the tally to at least 69.

“It’s very dangerous from an ‘integrity of the numbers’ standpoint if there’s a sense that this stuff is floating all around and there’s some people who can make money off it beforehand,” said David Dodge, a former Bank of Canada governor and deputy minister of finance. “More restrictive is better than less restrictive.”

Statistics Canada data drive movements in the $61.2 billion daily market for the country’s dollar, as well as bonds and the Toronto Stock Exchange. The currency jumped as much as 0.7 percent in the hour before stronger-than-forecast jobs data were published in May 2009, leading to speculation by traders and private-sector economists that the number in the report had been disclosed. The agency found no evidence of a leak.

Parliamentary Review

A parliamentary committee should review the data-release practice, Liberal opposition lawmaker John McCallum said today. McCallum said he will ask the Government Operations and Estimates Committee to hold hearings on the policy.

“I think that’s far too many people receiving that information,” said McCallum, a former chief economist at Royal Bank of Canada who served as Canada’s revenue minister between 2004 and 2006. “Obviously the more people get it, the more likely there will be a leak, or there will be inappropriate behavior.”

“It surprises me that the number is that big,” said Ed Devlin, the London-based head of Canadian portfolio management at Pacific Investment Management Co., manager of the world’s largest bond fund, referring to the number who can see releases. “It should probably be less.”

‘Play Safe’

David Love, a trader of interest-rate derivatives at Le Groupe Jitney Inc. brokerage in Montreal, said he’s wary of taking market positions ahead of key releases. “You have to play safe,” Love said.

“The data should be kept so tight,” Love said in a telephone interview. “Do you know how much money you could make by having the data one day before? It’s crazy.”

On the business day before publication, an analyst in the Finance Department’s economic analysis and forecasting division either goes to Statistics Canada to get a copy of the release, or downloads an encrypted file, documents show. The analyst gives a copy to three other senior officials in the department and writes a so-called house card that prepares the minister for questions in Parliament. A pool of 18 finance department officials can see some or all of the reports at 2 p.m. Eight others, including up to five political staff in the minister’s office, have access at 5 p.m.

Other Departments

Similar procedures for specific releases are in place for 12 people at the Department of Foreign Affairs and International Trade and 15 at Human Resources and Skills Development, as well as about 15 at the Bank of Canada. Raymond Rivet at the Privy Council Office, which supports the office of Prime Minister Stephen Harper, declined to say how many people have access, citing security reasons.

“It sounds like there’s a lot of risk of some kind of leakage when you have that many oars in the water,” said Doug Porter, deputy chief economist at Bank of Montreal’s Capital Markets unit, by telephone from Toronto.

“Advance release information is provided to a restricted number of authorized federal government organizations to ensure they are in a position to react in a timely fashion when data may have an impact on policy,” Statistics Canada spokesman Peter Frayne said in an e-mail.

‘Work-Related Need’

Access “is restricted to only those persons with a work- related need,” Frayne said. “The data are delivered to them through secure channels and the receiving organizations apply strict security measures to protect the information.”

Porter said he isn’t convinced by the argument that ministers need to be briefed before the data is published. “The analysis can be done fairly quickly once the numbers are released,” he said. “I’m not sure there’s any great urgency to respond to these numbers.”

The government should restrict early access to a “much smaller group,” said Peggy Nash, finance spokeswoman with the New Democratic Party, the biggest opposition party in the country’s House of Commons.

“Most of these insiders don’t need to have this data. They can find out when the rest of Canadians find out,” Nash told reporters in Ottawa.

Currency traders contacted the Bank of Canada in 2009 with suspicions of data leaks, documents obtained by Bloomberg show. As well, Statistics Canada released an audit from KPMG LLP earlier this year saying the agency had automated computer processes that inadvertently made economic data available to data distributors before the official publication time for more than six years. That process was stopped in November after Statistics Canada learned of the early release.

‘Leaky Boat’

“The market perception still seems to be that there’s some sort of a leaky boat out there,” said David Watt, senior currency strategist at the RBC Capital Markets unit of Toronto- based Royal Bank of Canada, the country’s biggest bank by assets. “That perception gets built into traders’ minds, and it’s going to stay until they get years of evidence” that suggests otherwise, he said.

Aside from the minimum of 69 government workers who are authorized to receive at least one data report, Statistics Canada had a pool of 40 external translation firms and individuals who receive reports early so they can translate them into English or French, Canada’s official languages, documents show. The precise total of people with advance access couldn’t be determined because both the Privy Council Office and Statistics Canada refused to say how many people are authorized to receive data early, citing security concerns.

Too Expensive

The agency rejected a 2009 internal recommendation that it “reinforce security and confidentiality” by hiring employees to translate data. The proposal was turned down because the C$90,000 ($88,500) in startup costs and C$66,000 per year in additional ongoing expenses were judged to be too great, documents obtained under Canada’s Access to Information law show. Frayne said Statistics Canada continues to use external translators.

Bank of Canada spokesman Jeremy Harrison, and spokeswomen Anna Maddison at human resources and Caitlin Workman at trade said in separate e-mailed statements that they have strict safeguards in place to protect advance data.

Finance Minister Jim Flaherty’s office “treats confidential data with extreme caution,” spokesman Chisholm Pothier said by e-mail. “The individuals receive the data to properly brief the Minister on it and its broader policy implications. It is reasonable and important for the Minister of Finance to receive information in a timely fashion on news that has an impact on the economy.”

While the finance minister should be briefed about key data, particularly if there is something unusual about the number, there is little need for ministerial aides to see data the day before they’re published, said Dodge, 68, who was head of the Ottawa-based central bank from 2001 to 2008.

‘Pretty Restricted’

“The number of political staff having access should be pretty restricted,” Dodge said in a telephone interview. “When the perception is that this gets broader than the pure ‘need to know,’ the potential for trust breaking down gets greater.”

Industry Canada, the ministry responsible for Statistics Canada, asked last year to be removed from the list of departments that receive pre-released economic data, spokesman Michel Cimpaye said in an e-mail.

Tony Clement, who was Industry Minister from October 2008 until May, said it isn’t necessary to involve so many people.

“It’s not rocket science to figure out for extremely sensitive information to have a much more direct path to a minister,” said Clement, who is now Canada’s Treasury Board president, in an Oct. 13 interview at Bloomberg’s New York headquarters. “There are easier ways to do it, quite frankly.”

Important for Marketplace

“This is important data that has to be trusted by the marketplace and is important to the proper functioning of the marketplace,” said Clement.

The current procedures were put in place after the March 1994 jobs figures were leaked to CBC Television before their official release, said Ivan Fellegi, who was Statistics Canada’s chief statistician for 23 years until 2008. In response to the leak, the circle of recipients was tightened, and lists were drawn up of who in each department could receive data, he said.

Canada’s policies contrast with other countries that either have more stringent rules governing pre-release of data, or have moved to tighten access. Canada is one of 68 countries that subscribe to the International Monetary Fund’s data dissemination standards, which set out best practices for economic reports. More than half the countries ban all early access to reports.

30 Minutes

In the U.S., the payrolls report is given to the president through the Council of Economic Advisers office the night before its release. The secretaries of labor, commerce and the treasury only receive the information 30 minutes before it’s made public, along with the Federal Reserve Chairman, according to the IMF. Pre-release of Canadian data occurs between 14 and 18.5 hours before publication.

The U.K. implemented rules in 2008 aimed at tightening early access. They stipulate job titles of people who receive data early must be made public. In contrast, a Canadian Finance Department document, obtained under the Access to Information law, had the names and titles of all officials who receive data redacted.

A March 2010 review of the U.K. rules by the Statistics Authority found the government has had mixed success in reducing pre-release access. The number of people with access to any individual report varied from 8 to 55 people, the report said, adding it isn’t possible to say “whether the numbers of people being granted access are, in fact, the minimum” necessary.

‘Instant Comments’

“There is currently a widespread expectation that Ministers and Departments must be able to give instant comments when new statistics are published,” Michael Scholar, chairman of the U.K. Statistics Authority, wrote in the report. “This expectation will need to be changed.”

Don Drummond, a former associate deputy finance minister, says the number of department employees receiving data appears to have increased slightly since 2000 when he left his position, a job that put him among those who received advance access.

“It certainly would not have been that high at the end of my period,” said Drummond, who was chief economist at Toronto- Dominion Bank until 2010 and is a member of the National Statistics Council, a panel of experts that advises Statistics Canada.

Nobody has alleged that any of the 69 has used the information improperly, and Drummond says he doubts there’s merit to speculation trades are being made with leaked data.

“They’ve got lots of conspiracy theories, probably from spending too much time looking at the numbers every single second,” Drummond said, referring to traders.

Asked what the government should do, Pimco’s Devlin said, “Tighten the circle. That makes sense.”

--With assistance from Theophilos Argitis in Ottawa and Chris Fournier in Halifax. Editors: Paul Badertscher, David Scanlan

To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net. Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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